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A09415 Summary:

BILL NOA09415C
 
SAME ASSAME AS S08439-B
 
SPONSORGallagher
 
COSPNSRMitaynes, Gonzalez-Rojas, Rosenthal L, Epstein, Kim, Thiele, Galef, Gottfried, Mamdani, Simon, Davila, Forrest, Carroll, Kelles
 
MLTSPNSR
 
Amd §§102, 203, 211, 802 & 804, add §§215 & 810, Lim Lil L
 
Relates to the disclosure of beneficial owners of limited liability companies and certain information about such beneficial owners.
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A09415 Actions:

BILL NOA09415C
 
03/07/2022referred to corporations, authorities and commissions
04/20/2022amend and recommit to corporations, authorities and commissions
04/20/2022print number 9415a
04/28/2022amend (t) and recommit to corporations, authorities and commissions
04/28/2022print number 9415b
05/03/2022reported
05/05/2022advanced to third reading cal.628
05/25/2022amended on third reading 9415c
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A09415 Memo:

NEW YORK STATE ASSEMBLY
MEMORANDUM IN SUPPORT OF LEGISLATION
submitted in accordance with Assembly Rule III, Sec 1(f)
 
BILL NUMBER: A9415C
 
SPONSOR: Gallagher
  TITLE OF BILL: An act to amend the limited liability company law, in relation to the disclosure of beneficial owners of limited liability companies   PURPOSE OR GENERAL IDEA OF BILL: This bill aims to provide full transparency for the beneficial owners of limited liability companies in New York by defining beneficial owner- ship, requiring the disclosure of beneficial owners.   SUMMARY OF SPECIFIC PROVISIONS: Section one is the short title. Section two amends the LLC law to define beneficial ownership, exclude certain individuals from qualifying as beneficial owners, and capture indirect forms of beneficial ownership, including through trusts and intermediaries. Section three amends the LLC law to require that a document identifying the beneficial owners of an LLC be included with the documents necessary to organize an LLC in New York State. Section four amends the LLC law to require an amendment to the documents necessary to organize an LLC in New York State if there is a change to the beneficial owners of the LLC. Section five amends the LLC law to create a new section requiring the disclosure of beneficial ownership and permits the LLC to file a copy of the same form they file with the federal government. Section six amends the LLC law to require that a document identifying the beneficial owners of an LLC be included with the documents necessary to organize a foreign LLC in New York State. Section seven amends the LLC law, pertaining to foreign LLCS, to require an amendment to the documents necessary to organize a foreign LLC in New York State if there is a change to the beneficial owners of the foreign LLC. Section eight amends the LLC law, pertaining to foreign LLCS, to create a new section requiring the disclosure of beneficial ownership and permits the foreign LLC to file a copy of the same form they file with the federal government. Section nine is the effective date.   JUSTIFICATION: Anonymous shell companies have been exploited as vehicles for money laundering, tax evasion, organized crime, terrorist financing, and other forms of corruption for decades. In the United States, the most common form of a shell corporation is the limited liability company ("LLC"). To form an LLC, a person needs less personal information than is required to obtain a library card. The true owners of LLCs can be concealed even further through trusts and nesting layers of corporate intermediaries, facilitating money laundering, crime, and tax avoidance as assets become washed through anonymous legal entities. Billions of dollars from the illicit gains of international kleptocrats have been washed through LLCs in the United States, becoming nearly impossible to trace without tremendous effort. These phenomena have been thoroughly documented by leaks and investigations such as the Panama Papers in 2016 and Pandora Papers in 2021. Anonymous LLCs have also been vehicles for narcotics and human traffick- ers to launder their illicit profits and escape accountability. The sociologist Adam Travis has documented an "LLC effect" in housing markets, which is a statistically significant landlords caused by the combination of anonymity and limited liability protections. This effect was demonstrated by a 2019 Senate investigation into housing code violations in the Hudson Valley. Anonymous LLCs have also continued to facilitate campaign finance violations despite recent legislation prohibiting this practice. Beneficial ownership transparency, which includes disclosure and public reporting, is the internationally recognized gold standard for combating these forms of crime and corruption. This bill would make New York a national leader in terms of addressing the public policy problems created by anonymous shell corporations. This legislation would be a significant deterrent to corruption, fraud, and organized crime. It would ease the investigative burden on law enforcement authorities pros- ecuting financial crimes and the regulatory burden imposed on businesses required to report the beneficial owners of their customers pursuant to federal law, such as title agencies and financial institutions. Tenants would be able to know who their landlord is, researchers and policymak- ers would be better able to understand business and investment patterns otherwise made opaque by LLCs, and the government would be able to veri- fy the beneficial owners of LLCs involved in procurement processes.   PRIOR LEGISLATIVE HISTORY: This is a new bill.   FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS: To be determined.   EFFECTIVE DATE: This bill is effective 365 days after becoming law, provided however that the repeal, amendment, or enactment of any rule or regulation necessary to effectuate the meaning or purpose of this law on its effec- tive date is authorized to be made or completed before its effective date.
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A09415 Text:



 
                STATE OF NEW YORK
        ________________________________________________________________________
 
                                         9415--C
                                                                Cal. No. 628
 
                   IN ASSEMBLY
 
                                      March 7, 2022
                                       ___________
 
        Introduced  by  M.  of A. GALLAGHER, MITAYNES, GONZALEZ-ROJAS, L. ROSEN-
          THAL, EPSTEIN, KIM, THIELE, GALEF, GOTTFRIED, MAMDANI, SIMON,  DAVILA,
          FORREST  --  read  once and referred to the Committee on Corporations,
          Authorities and Commissions --  committee  discharged,  bill  amended,
          ordered  reprinted  as  amended  and  recommitted to said committee --
          again reported from said committee with amendments, ordered  reprinted
          as  amended and recommitted to said committee -- reported from commit-
          tee, advanced to a  third  reading,  amended  and  ordered  reprinted,
          retaining its place on the order of third reading
 
        AN  ACT  to  amend the limited liability company law, in relation to the
          disclosure of beneficial owners of limited liability companies
 
          The People of the State of New York, represented in Senate and  Assem-
        bly, do enact as follows:
 
     1    Section  1.  Short  title. This act shall be known and may be cited as
     2  the "LLC transparency act".
     3    § 2. Section 102 of the limited liability company law  is  amended  by
     4  adding a new subdivision (ii) to read as follows:
     5    (ii)  (1)  "Beneficial  owner" means a natural person who, directly or
     6  indirectly, (A) holds a  membership  interest  in  a  limited  liability
     7  company;  (B)  exercises  substantial  control  over  the decisions of a
     8  membership interest in a limited liability  company;  or  (C)  has  been
     9  assigned  a membership interest in a limited liability company.  For the
    10  purposes of this subdivision and for any references to beneficial owners
    11  of any limited liability company, the term "limited  liability  company"
    12  shall include, where applicable, foreign limited liability companies and
    13  authorized foreign limited liability companies.
    14    (2)  The term "beneficial owner" shall not include: (A) a minor child;
    15  (B) a person acting as a nominee, intermediary, custodian, or  agent  on
    16  behalf of another person; (C) a person acting solely as an employee of a
    17  limited  liability  company  and whose control over or economic benefits
    18  from the limited liability company derives solely  from  the  employment
    19  status  of  the  person;  (D)  a person whose only interest in a limited
    20  liability company is through a right of inheritance, unless  the  person
    21  also  meets the requirements of paragraph one of this subdivision; (E) a
 
         EXPLANATION--Matter in italics (underscored) is new; matter in brackets
                              [ ] is old law to be omitted.
                                                                   LBD13266-17-2

        A. 9415--C                          2
 
     1  creditor of a limited liability company, unless the creditor also  meets
     2  the  requirements  of  paragraph  one  of  this  subdivision; or (F) any
     3  natural person whose membership interest in a limited liability  company
     4  derives  solely  from  his  or  her employment by such limited liability
     5  company and such limited liability company's organization as an  employ-
     6  ee-owned  business  or  worker cooperative, as evidenced by such limited
     7  liability company's by-laws or articles of organization.
     8    (3) If a beneficial owner of a limited  liability  company  indirectly
     9  meets the requirements of subparagraph (A), (B), or (C) of paragraph one
    10  of  this subdivision, and such company is required to disclose its bene-
    11  ficial owners to the department of state or department of  taxation  and
    12  finance,  such  beneficial owner shall identify each and every entity or
    13  person linking such beneficial owner to the limited  liability  company,
    14  including  by  identifying every intermediary by name and explaining the
    15  nature of the legal or economic relationship of the beneficial owner  to
    16  each such intermediary and how each such intermediary is linked to every
    17  other  intermediary and to the limited liability company. The beneficial
    18  owner may be permitted or required to provide a  diagram  to  meet  this
    19  disclosure  requirement.  If  indirect beneficial ownership is exercised
    20  through a publicly traded entity, a REIT, a UPREIT, or  a  mutual  fund,
    21  the requirements of this paragraph shall only apply to beneficial owners
    22  holding or controlling twenty-five percent or more of the equity in such
    23  limited  liability  company.  This  subdivision  shall  apply until full
    24  disclosure of beneficial ownership by natural persons is achieved.
    25    (4) If indirect beneficial ownership is exercised through a  trust  or
    26  similar  arrangement  which  holds  or controls, directly or indirectly,
    27  twenty-five percent or more of  the  equity  in  the  limited  liability
    28  company  or exercises substantial control over such company, the limited
    29  liability company shall identify as  a  beneficial  owner  each  natural
    30  person serving as: (A) a trustee of the trust, a trust protector, or any
    31  other  individual  with authority, directly or indirectly, to dispose of
    32  trust income, assets, or principal; (B) a  trust  beneficiary  with  the
    33  right, directly or indirectly, to receive, demand, or withdraw any trust
    34  income,  assets,  or  principal;  and  (C) a grantor or settlor with the
    35  right, directly or indirectly,  to  revoke  the  trust  or  to  receive,
    36  demand, or withdraw trust income, assets or principal.
    37    §  3.  Paragraphs  6  and  7  of subdivision (e) of section 203 of the
    38  limited liability company law, as added by chapter 470 of  the  laws  of
    39  1997, are amended to read as follows:
    40    (6)  if all or specified members are to be liable in their capacity as
    41  members for all or specified debts, obligations or  liabilities  of  the
    42  limited  liability company as authorized pursuant to section six hundred
    43  nine of this chapter, a statement that all or specified members  are  so
    44  liable  for  such debts, obligations or liabilities in their capacity as
    45  members of the limited  liability  company  as  authorized  pursuant  to
    46  section six hundred nine of this chapter; [and]
    47    (7)  a  document  identifying  the  beneficial  owners  of the limited
    48  liability company in accordance with  subdivision  (a)  of  section  two
    49  hundred fifteen of this article; and
    50    (8)  any other provisions, not inconsistent with law, that the members
    51  elect to include in the articles [or] of organization for the regulation
    52  of the internal affairs of the limited liability company, including, but
    53  not limited to, (A) the business purpose for which the limited liability
    54  company is formed, (B) a statement of whether there are  limitations  on
    55  the  authority  of  members or managers or a class or classes thereof to
    56  bind the limited liability company  and  (C)  any  provisions  that  are

        A. 9415--C                          3
 
     1  required  or  permitted to be included in the operating agreement of the
     2  limited liability company pursuant to section four hundred seventeen  of
     3  this chapter.
     4    §  4.  Paragraphs 8, 9 and 10 of subdivision (d) of section 211 of the
     5  limited liability company law, paragraph 10 as added by  section  18  of
     6  part  KK  of chapter 56 of the laws of 2021, are amended and a new para-
     7  graph 11 is added to read as follows:
     8    (8) the discovery of a materially false or inaccurate statement in the
     9  articles of organization; [and]
    10    (9) the decision to change any other  statement  in  the  articles  of
    11  organization[.];
    12    (10)  to  specify,  change  or  delete  the email address to which the
    13  secretary of state shall email a notice of the fact that process against
    14  the limited liability company has been electronically served upon him or
    15  her[.]; and
    16    (11) a change in the  beneficial  owners  of  such  limited  liability
    17  company  or  the  information  required  to be provided relating to each
    18  beneficial owner pursuant to section two hundred three of this article.
    19    § 5. The limited liability company law is  amended  by  adding  a  new
    20  section 215 to read as follows:
    21    §  215.  Beneficial  ownership  disclosure.    (a) A limited liability
    22  company, when disclosing its  beneficial  owners,  shall  identify  each
    23  beneficial  owner by: (1) name; (2) date of birth; (3) current  residen-
    24  tial  or business street address; (4) a unique identifying number from a
    25  non-expired passport issued by the United States or a non-expired  driv-
    26  er's  license  or  identification  card issued by this or another  state
    27  or,  if  none, a legible and credible copy of the pages of a non-expired
    28  foreign passport bearing a photograph, date of birth,  and  unique iden-
    29  tifying  information  for the beneficial owner; (5) a federal  or  state
    30  taxpayer  identification  number  or, if none, a legal entity identifier
    31  issued by the Global Legal Entity Identifier Foundation.
    32    (b) A limited liability company, when disclosing its beneficial owners
    33  to the department of state or department of taxation  and  finance,  may
    34  submit  a  copy  of  the  beneficial  ownership information such company
    35  submitted to the federal government pursuant to 31 U.S.C.  section  5336
    36  in  order  to  satisfy state disclosure requirements, provided that such
    37  federal registration is current and contains all information required by
    38  state law.
    39    (c) The identification and disclosure of the name,  business  address,
    40  and  year  of  birth of a beneficial owner shall not be deemed an unwar-
    41  ranted invasion of personal privacy  pursuant  to  article  six  of  the
    42  public  officers  law.  All other personal or identifying information of
    43  such beneficial owner  shall  be  deemed  confidential  except  for  the
    44  purposes of law enforcement. If confidential information associated with
    45  a  beneficial  owner  is  held  electronically,  such  records  shall be
    46  encrypted.
    47    § 6. Paragraphs 7 and 8 of subdivision  (a)  of  section  802  of  the
    48  limited liability company law are amended and a new paragraph 9 is added
    49  to read as follows:
    50    (7)  a  statement  that  the  foreign  limited liability company is in
    51  existence in the jurisdiction of its formation at the time of the filing
    52  of such application; [and]
    53    (8) the name and address of the authorized officer in the jurisdiction
    54  of its formation where a copy of its articles of organization  is  filed
    55  or,  if  no public filing of its articles of organization is required by
    56  the law of the jurisdiction of formation, a statement that  the  foreign

        A. 9415--C                          4
 
     1  limited liability company shall provide, on request, a copy thereof with
     2  all  amendments  thereto (if such documents are in a foreign language, a
     3  translation in English thereof under oath of  the  translator  shall  be
     4  attached  thereto),  and  the name and post office address of the person
     5  responsible for providing such copies[.]; and
     6    (9) a document identifying the beneficial owners of the foreign limit-
     7  ed liability company in accordance with subdivision (a) of section eight
     8  hundred ten of this article.
     9    § 7. Section 804 of the limited liability company law  is  amended  by
    10  adding a new subdivision (c) to read as follows:
    11    (c) Every foreign limited liability company that has received a filing
    12  receipt  entitled  "Certificate  of  authority  of .... (name of foreign
    13  limited liability company) under  section  eight  hundred  five  of  the
    14  Limited  Liability Company Law," evidencing authority as provided herein
    15  shall  amend  its application for authority upon a change in  beneficial
    16  ownership  or  the  information required to be provided relating to each
    17  beneficial owner pursuant to section   eight   hundred   two   of   this
    18  article within ninety days of such change.
    19    §  8.  The  limited  liability  company law is amended by adding a new
    20  section 810 to read as follows:
    21    § 810. Beneficial ownership disclosure.  (a) A foreign limited liabil-
    22  ity company, when disclosing its beneficial owners, shall identify  each
    23  beneficial  owner by: (1) name; (2) date of birth; (3) current  residen-
    24  tial  or business street address; (4) a unique identifying number from a
    25  non-expired passport issued by the United States or a non-expired  driv-
    26  er's  license  or  identification  card issued by this or another  state
    27  or,  if  none, a legible and credible copy of the pages of a non-expired
    28  foreign passport bearing a photograph, date of birth,  and  unique iden-
    29  tifying  information  for the beneficial owner; (5) a federal  or  state
    30  taxpayer  identification  number  or, if none, a legal entity identifier
    31  issued by the Global Legal Entity Identifier Foundation.
    32    (b) A foreign limited liability company, when disclosing  its  benefi-
    33  cial  owners  to  the  department of state or department of taxation and
    34  finance, may submit a copy of the beneficial ownership information  such
    35  company  submitted  to  the  federal  government  pursuant  to 31 U.S.C.
    36  section 5336 in order to satisfy state disclosure requirements, provided
    37  that such federal registration is current and contains  all  information
    38  required by state law.
    39    (c)  The  identification and disclosure of the name, business address,
    40  and year of birth of a beneficial owner shall not be  deemed  an  unwar-
    41  ranted  invasion  of  personal  privacy  pursuant  to article six of the
    42  public officers law. All other personal or  identifying  information  of
    43  such  beneficial  owner  shall  be  deemed  confidential  except for the
    44  purposes of law enforcement. If confidential information associated with
    45  a beneficial  owner  is  held  electronically,  such  records  shall  be
    46  encrypted.
    47    §  9.  This act shall take effect on the three hundred sixty-fifth day
    48  after it shall have become a law; provided  further,  however,  that  if
    49  part KK of chapter 56 of the laws of 2021 shall not have taken effect on
    50  or  before  such date then section four of this act shall take effect on
    51  the same date and in the same manner as such part of such chapter of the
    52  laws of 2021 takes effect. Effective immediately, the  addition,  amend-
    53  ment and/or repeal of any rule or regulation necessary for the implemen-
    54  tation  of  this act on its effective date are authorized to be made and
    55  completed on or before such effective date.
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